Temporary Relief for Certain REITs and Taxable
REIT Subsidiaries That Provide Accommodations to Persons Affected by Hurricanes
Katrina and Rita

The Internal Revenue Service will not treat a hotel, motel, or other
establishment located in the Gulf Opportunity Zone, as defined in § 1400M
of the Internal Revenue Code (26 U.S.C. § 1400M), that otherwise
satisfies the definition of a “lodging facility” under § 856(d)(9)
as other than a “lodging facility” if it is used to provide temporary
housing to certain persons affected by Hurricane Katrina or Hurricane Rita,
provided the recordkeeping requirements of this notice are satisfied.

BACKGROUND

On August 28, 2005, and August 29, 2005, the President issued major
disaster declarations for the states of Florida, Alabama, Louisiana, and Mississippi
as a result of Hurricane Katrina. On September 24, 2005, the President declared
major disasters for the states of Louisiana and Texas as a result of Hurricane
Rita. These declarations were made pursuant to the Robert T. Stafford Disaster
Relief and Emergency Assistance Act, 42 U.S.C. 5121-5206.

Subsequently, the Federal Emergency Management Agency (FEMA) designated
certain counties and parishes as being eligible for individual assistance
(or individual and public assistance).

Certain real estate investment trusts (REITs) that own lodging facilities
expressed concern that extended stays at those facilities by persons affected
by these disasters may cause the REITs to fail to satisfy the income tests
under §§ 856(c)(2) and (c)(3). Although rents from real property
generally are treated as qualifying income for purposes of these tests, amounts
received or accrued from a corporation in which the REIT owns stock are subject
to special rules. Under one of these rules, if a REIT leases an interest
in real property that is a qualified lodging facility to a taxable REIT subsidiary
(TRS) of that REIT, then the lease payments may qualify as rents from real
property if the property is operated on behalf of the TRS by a person who
is an eligible independent contractor. Section 856(d)(9)(D)(ii) provides
that a “lodging facility” is a hotel, motel, or other establishment
more than one-half of the dwelling units in which are used on a transient
basis. Section 856 and the regulations thereunder do not define the term
“transient basis”. Accordingly, the Internal Revenue Service
issued Notice 2005-89, 2005-49 I.R.B. 1077, which provided that the Service
will not treat an establishment that met the definition of “lodging
facility” as anything other than a “lodging facility” if
it was used to provide temporary housing to certain persons affected by Hurricane
Katrina or Hurricane Rita, provided certain recordkeeping requirements were
satisfied. Notice 2005-89 was effective for six months from its effective
date, August 28, 2005.

TRANSIENT BASIS REQUIREMENT

Due to the magnitude of the disaster, the Service has become aware of
the continued need for temporary housing for certain persons affected by Hurricanes
Katrina and Rita beyond February 28, 2006, the expiration date of Notice 2005-89.
Accordingly, for purposes of § 856(d)(9)(D)(ii), the Service will
not treat a dwelling unit within a lodging facility located in the Gulf Opportunity
Zone as being used other than on a transient basis during any six month period
beginning on or after February 28, 2006, through the date on which this notice
expires, if the unit is used to provide shelter to (a) an individual whose
principal residence for purposes of § 1033(h)(4) on August 28, 2005,
was located in a covered disaster area and who has been displaced because
the residence has been destroyed or damaged as a result of Hurricane Katrina
or Hurricane Rita (a displaced resident); (b) employees of business entities
whose principal place of business is located in a covered disaster area who
have been relocated to other areas where the business entities have job openings
(a displaced employee); or (c) a worker assisting in relief activities in
the covered disaster area, whether or not the worker is affiliated with a
recognized government or philanthropic organization (a relief worker).

A TRS that is the lessee of a hotel, motel, or other establishment and
that seeks to rely on this notice with respect to the provision of shelter
to a displaced resident, displaced employee, or relief worker for any period
after February 28, 2006, must keep records for each six month period in which
it seeks to rely on this notice indicating the dates on which shelter was
provided, and the name and address of the displaced resident, displaced employee,
or relief worker. In addition, (a) with respect to a displaced employee,
the TRS must keep records indicating the individual’s employer, and
(b) with respect to any relief worker, the TRS must keep records indicating
the name of the individual’s employer or sponsoring organization and
the nature of the relief activities undertaken during the individual’s
stay.

EFFECTIVE DATE

This notice is effective February 28, 2006, and will expire on August
28, 2007.

PAPERWORK REDUCTION ACT

The collections of information in the notice have been reviewed and
approved by the Office of Management and Budget (OMB) in accordance with the
Paperwork Reduction Act (44 U.S.C. 3507) under control number 1545-1977.

An agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information unless the collection of information
displays a valid OMB control number.

The collections of information in the notice are in the section of this
notice entitled “Transient Basis Requirement”. The collections
of information are required for compliance with § 856(d)(9)(D).
The collections of information are required to obtain a benefit. The likely
respondents are corporations.

The estimated total annual reporting burden is 500 hours.

The estimated annual burden per respondent varies from 25-75 hours,
depending on the circumstances, with an average of 50 hours. The estimated
number of respondents is 10.

Books or records relating to a collection of information must be retained
as long as their contents may become material to the administration of the
internal revenue law. Generally, tax returns and tax return information are
confidential, as required by 26 U.S.C. 6103.

DRAFTING INFORMATION

The principal author of this notice is Jonathan D. Silver of the Office
of Associate Chief Counsel (Financial Institutions & Products). For further
information regarding this notice, contact Mr. Silver at (202) 622-3930 (not
a toll-free call).